There’s never been a worse time for the aviation industry globally but that’s not stopping Dubai-based tycoon Murari Lal Jalan from seeking to resuscitate moribund Jet Airways. Jalan’s an aviation novice but he’s got ambitious plans to take the airline aloft within six months after he gets crucial bankruptcy resolution clearance from the National Company Law Tribunal. Jalan says the pandemic makes it the “best time” to enter the sector as input prices are down. While there’s widespread industry scepticism about Jalan’s time-frame, he says everything’s “on track” for assembling a narrow- and wide-body fleet of 25 aircraft and he plans to restart domestic and international flights almost simultaneously. Jalan’s also negotiating to regain Jet’s previous time-slots and although he’s unlikely to succeed, given use-it-or-lose-it regulations, that’s not a deal-breaker as there are now many more slots available since Jet’s 2019 collapse.

Jalan, who’s leading the takeover with London-based financial advisory firm Kalrock Capital, is clear Jet Airways V.2 will back as a full-service operation and aims to return the airline to its previous 125 plane-strength in five years. But he’s been notably less forthcoming about how he’ll finance his high-flying goals and regain the confidence of the lending fraternity which is taking a massive haircut on Jet’s earlier avatar.

Amazingly, despite these tough times, Jalan isn’t the only player readying for take-off in India’s struggling aviation world. Zurich Airport International’s slammed past heavyweight rivals and landed rights to run Noida International Airport for 40 years. Zurich Airport believes the airport’s Phase-I will be ready in 2024 when it reckons the Indian flying public will be ready to take to the skies in a big way once again. Phase-I provides for one runway catering to 12 million passengers annually. Zurich Airports believes international aviation prospects will remain dull for some years. But it’s betting domestic travel will pick up rapidly and so it plans to stay firmly focussed on the India-only market for the next few years.

Good time to invest

It’s an old maxim that it’s best to invest at the time of maximum pessimism. So, if you look at it that way, there’s never been a better moment to invest in Indian aviation which has been hammered by Covid-19. Domestic travel is picking up but the airlines are still operating at 70 per cent of normal scheduled flights. In February 2021, for instance, average daily departures totalled 2,296, down from 3,137 in the same month last year before the pandemic struck with full force. On the bright side, that February number was up from 2,190 daily departures in January.

Credit rating agency ICRA calculates that in fiscal 2021, India’s airlines’ losses totalled ₹21,000 crore and the airports accumulated losses of ₹5,400 crore that led to huge job losses too. Government figures show around 39,000 people in the sector lost their livelihoods between last March and September. That number included 19,247 workers and 6,981 airline employees. Besides that, 12,646 ground-handling staff found themselves jobless.

What makes investors in India’s aviation sector look especially brave is there’s no way of telling when the skies will return to normal or even if they will return to normal. The experience of the last year has truly changed the way we live and work and that’s going to have a huge impact on the aviation industry. Analysts forecast international business travel will remain down by around 40 per cent till at least 2025-26.

Even then, corporate bean-counters may figure it’s better to keep Indian business travellers in their Zoom Rooms rather than expensively criss-crossing the globe. And all this will have a fundamental knock-on effect on airline finances, and ticket prices, as business travellers globally account for well over 50 per cent of airline profits. That’s not worrying Jalan, though, as he believes the Indian market will be driven by VFR, aka passengers who want to Visit Friends and Relatives. He also plans to tap into the cargo market.

India’s aviation industry is already looking very different from recent years. In 2019, IndiGo Airlines had cornered a massive 47 per cent of the Indian aviation market. Now, that’s up to almost 60 per cent in a reduced market. IndiGo’s had to make cuts but it’s the only airline with financial staying power. What’s more, IndiGo startled the market by continuing to take new aircraft deliveries from Airbus, though it’s important to note most of the 44 new plans will replace older planes and not increase carrying capacity.

Many other major changes are also looming. It looks like Air India will almost certainly go to the Tatas, which will then have stakes in Air Vistara and Air Asia and it’s not clear what conflicts-of-interest this may create. For other airlines, desperate times have called for desperate measures. SpiceJet, for instance, has made a big thrust into the cargo business and has turned several of its single-aisle planes into freighters. That’s ensured a daily cash flow even at the bleakest moments when there were no passenger flights.

The go-go years were already over for India’s aviation industry even before Covid-19 changed the world as we knew it. Between 2014-18 growth soared 14-18 per cent annually. The result was that the industry’s size almost doubled in those four years. In 2018 alone, growth was 18.6 per cent year-on-year as 131 million passengers boarded domestic flights.

But there was a sharp levelling off in 2019 and growth slowed to 3.74 per cent or 144 million passengers. Partly the slowdown came because Jet had run into heavy headwinds. But the economy was also slowing and it was clear the aviation industry could no longer maintain such hectic expansion.

The fall in passenger numbers has, inevitably, taken a toll on the airports which must pay a share of their gross revenues to the Airports Authority of India. In addition, they have fixed costs like maintaining runways, aprons, hangars and terminals. They’ve also had to reduce rents for retailers whose sales have dropped steeply. And now there are tussles with the airlines which are pushing for reduced landing charges given their financial straits.

If the forecasts for the aviation industry aren’t bad enough already, the biggest party-spoiler of all could already be hanging about on the horizon. Oil prices are climbing steadily and Gulf-producer states like Saudi Arabia have made it abundantly clear they won’t be making efforts to reduce them. Fuel prices account for 40-50 per cent of airline costs and price increases can be the biggest dampeners on both growth and profits. If oil prices rise, then it’s certain the industry’s comeback will take even longer than it otherwise might have.

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